What is Benchmarking? Benchmarking is the process of measuring an organization’s internal processes then identifying, understanding, and adapting outstanding practices from other organizations considered to be best-in-class. Benchmarking is a organized system that organizations can use to assess their own performance against to the best in the industry.

What is Benchmarking? Learning from others what they do right and then imitating it to avoid “reinventing the wheel” Benchmarking is essentially using ideas from the most successful organizations and modifying them for your own organization. Not a cure-all, but a tool for continual improvement.

Measuring yourself against What is Benchmarking? Measuring yourself against the “best in class” It shows organizations how these successful businesses perform, understand where their own performance falls short, and makes changes to close those gaps.

Diagram of Benchmarking Concept What are others’ performance levels? How did they get there? What is our performance level? How do we do it? Creative Adaptation Breakthrough Performance Figure 8-1 Benchmarking Concept (pg. 208) Reprinted with the permission of the Institute of Industrial Engineers, 3577 Parkway Lane, Suite 200, Norcross, GA 30092, 770-449-0461. Copyright © 1995.

Key Elements Measuring using metrics - Expressed numerically, with target in mind Performance is measured by units called metrics. The goal is to reach the same number as the best in class. A company plots its own performance against this target.

Key Elements Recognizing differences in processes - Need to thoroughly understand their own processes as well as those of the best in class’s company Managers need to know why their performance is different. This allows managers to decide on an improvement strategy to meet this goal.

Key Elements Comparing self to external competition - Reduces chance of being caught off guard - Encourages competition - Personnel more motivated to attain goals Critical, since competition can be anywhere. Can alert the company if it falls behind or does not move forward.

Key Elements Imitation/Adaptation vs. Invention - Provides a working model on an improved process Cost and time-efficient. Reduction in planning, testing, and prototyping.

Key Elements Continuous Improvement - Technologies and ideas become obsolete; businesses need to keep abreast of what is current - Some benchmarking may need to be done continually To avoid contentment, benchmarking should be used continually in the pursuit of up-and-coming ideas.

Handout #1

What Can We Learn from Benchmarking? Who in your field performs best? What ideas can your organization adapt? Who would be best for you to benchmark with? As we will later see, sometimes it is helpful to look outside your own field. It might be surprising that something used in a very different industry can be useful to yours.

Reasons to Benchmark Assists businesses cultivate strong points and diminish problem areas Lets ambitions be set impartially, taken from outside information Includes emulation and revision instead of new innovation Probable, valuable knowledge can be established and implemented early on This will help organizations decide who they will serve and show them the strengths they have that will give them a competitive advantage. When people have the outside information, it tends to be quite a motivator. It is cost-efficient to not have to develop something new.

Requirements Buy-in Training Timeliness Process owners and upper management must agree on the change. Upper management enables the process by incorporating changes into the planning process and providing resources/training.

6 Steps of the Benchmarking Process Decide what to benchmark Understand current performance Plan Study others Learn from the data Use the findings

Decide What to Benchmark Which process are causing the most trouble? Which processes contribute most to customer satisfaction and which are not performing up to expectations? What are the competitive pressures impacting the organization the most? What processes or functions have the most potential for differentiating our organization from the competition? Benchmarking can be applied to just about any process within an organization or process. Matching the best-in-class competition in some of these areas will help bring about market and financial success. Vision and mission statements are helpful.

Critical Success Factors Strategy that defines how a company positions itself and competes Expressed in mission and vision statements Includes list of critical activities that must be accomplished to realize company’s vision Help get the most “bang for the buck” Usually made up by a number of sub-processes. Thinking about mission and critical success factors can help in determining what to benchmark.

Understand Current Performance Thoroughly understand the and document the current process Flow charts and cause-and-effect diagrams are helpful Pay attention to inputs and outputs In understanding the current processes, be sure to notice exceptions to how things are normally done; they often take up a lot of the resources. Those who know they process best will know how to identify and fix problems. Some of these members should be on the benchmarking team. Quantify the process while documenting it, preferably using metrics.

Plan The benchmarking team decides: - what type of benchmarking to perform - what type of data to collect - the method of collection The decision of how to perform the benchmarking happens once the internal processes are understood and documented. Identify the organizations to be benchmarked. Agree on a timetable.

Types of Benchmarking Internal Competitive Generic/Process/Functional

Internal Benchmarking Evaluates progressions or procedures inside the business or company over time with recognized objectives in mind Benefits - the simplicity of data gathering and the designation of parts for upcoming outside inspections Disadvantage - a decreased likelihood that it will generate important process advancement innovations Data is easy to obtain; not confidentiality issues. Speaking with internal groups often brings immediate ideas for improvement or specifies problems that can help direct where to look outside the organization for answers. 20

Competitive Benchmarking Evaluates the organization's procedures to those of close rivals. An expert or another outside party, rather than the company itself, gathers and evaluates the data because of its proprietary quality. While some organizations will be unwilling to release their information, much of it is easily accessible, in the form of Consumer Reports, Morningstar, buying the product and testing it, etc. 21

Generic/Process/Functional Benchmarking Investigates actions that are or can be used in the majority of businesses One inconvenience is in realizing how processes transform across industries Can frequently bring about an organization's radically changing its thoughts about its working competence and in the reengineering of industry processes Innovations from other kinds of organizations can be applied across industries Makes widest use of data gathering. Companies are more willing to share information if you are not in direct competition with them, but pick comparable companies. Their data might need to be adjusted to get a meaningful metric.

Generic/Process/Functional Benchmarking (continued) Examines comparable practices and procedures in businesses or companies in additional industries Presents a chance for innovative advances by investigating high-performance methods across an array of trades and businesses The best-in-class depends on what the organization’s needs are. They may not be best-in-class in everything. Find the best ones by using the critical success factors. Start with a long list and narrow it down.

Study Others How are best-in-class processes practiced? What are the measurable results? Use internal sources, information available publicly, your own research, or, best, a combination of all three. Some options are questionnaires, site visits, and focus groups.

Learn From the Data Is there a gap between the organization’s performance and the performance of the best-in-class organizations? What is the gap? How much is it? Why is there a gap? What does the best-in-class do differently that is better? If best-in-class practices were adopted, what would be the resulting improvement? Usually the numbers will be evident and speak for themselves, assuming that you used appropriate measures. Market analysis also proves superiority. If the market prefers one process over another, it shows superiority.

Three Types of Gaps Negative Parity Positive Negative – external processes may be much better than internal processes, calls for major improvement; Parity – process performance may be about equal, needs further investigation to see if improvements can be made; Positive – the internal process may be better than outside organizations – the internal process deserves recognition

Identifiable Benchmark Gaps Must be described and quantified Processes must have inputs, activities, and outputs Level of detail must allow for eventual quantification Key process measures should be quantified. Process descriptions must be described in enough detail to present a clear picture. How big is the gap and what types of metrics and objectives should be pursued?

Additional Gap Analysis Necessary to determine root causes Gaps come from process practices, general business practices, and the organizational and operational structure Changeable Judgment is necessary to decide how to proceed in an appropriate period of time to achieve this goal.

<<<< BREAK >>>> Handout #2

Use the Findings Benchmarking must generate outcomes. Individuals who can formulate the modifications must be notified. Process Owners and Upper Management must concur on the modifications. There are seven stages for progression and implementation of action plans. Benchmarking is a waste of time if it does not produce results. These are the ones who can implement the change.

Goals and Objectives After acceptance, the new goals and objectives set are based on benchmark findings Depends on the organization’s planning process Once the goals are decided on and accepted, use the seven steps for developing and executing the action plan.

Development and Execution of Action Plans Specify tasks Sequence tasks Determine resource needs Establish task schedule Assign responsibility for each task Describe expected results Specify methods for monitoring results Involves both process owners and management

Adapting to Change Process practices are easier to change Business practices are harder to change Business practices are harder to change – more general and may apply to many or all processes; are often long-term projects. Process practices make up the process itself. 33

Disadvantages Best in class is a moving target Not the only answer Not helpful for processes that do not offer much opportunity to improve Not helpful if process owners and managers feel threatened by findings or do not act upon them Can be difficult to keep up with the competition’s use of new technology. Not a cure-all or philosophy; simply a tool that must be used properly.

Potential Problems with Benchmarking Benchmarking is restricted to your individual trade It may confine the focal point to what is currently being done Useless if used for procedures that do not present a great deal of opportunity for progress Process owners and managers may feel intimidated or may not admit/act on results Obviously, the company that you want to improve is your own; the one being benchmarking likely does not need your help improving. It may prevent you from seeing the big picture. Lots of wasted time, effort, and money if the process in question does not have much room for improvement. The results can be scary, and the management may not want to do anything about the results.

Exercise #4 in Textbook (p. 221) What difficulties are typically encountered when benchmarking direct competitors? Describe several ways to work around these problems.

Please clear your desks …… Quiz Please clear your desks ……

Works Cited The Benchmarking Exchange. (2008) What is benchmarking? Retrieved February 11, 2008 from http://www.benchnet.com/wib.htm Answers.com – Business & Finance. Business encyclopedia: benchmarking. Retrieved February 11, 2008 from http://www.answers.com/topic/benchmarking?cat=biz-fin Besterfield, D. H., Besterfield, G. H., Besterfield-Michna, C., & Besterfield-Sacre, M. (2003). Total quality management (3rd ed.) New Jersey: Pearson Education International

Other Resources American Productivity & Quality Center (APQC) http://www.asq.org/index.html Benchmarking and Best Practices Presentation http://www.asq.org/articles/aqc-proceedings/public_proceedings/54_2000/14094.pdf The Benchmarking Exchange and Best Practices Homepage http://www.benchnet.com/ Benchmarking: The search fo rIndustry Best Practices That Lead to Superior Performance by Robert C. Camp The Benchmarking Book by Michael J. Spendolini